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Bifurcated world: The haves vs have-nots. These are not normal times. 2025 was a year when the Fed cut rates even as inflation remained sticky above the 2% mark. It was also a year when the Trump administration turned on the fiscal tap with One Big Beautiful Bill Act despite a worsening fiscal and debt crisis. Forget inflation targeting – any remaining notion of fiscal conservatism has been thrown out the window. Fiscal and monetary largesse now rule the day, propelling the S&P 500 to new highs, with AI plays defying the force of gravity. From an investor’s standpoint, what could possibly go wrong when the vibes are good and liquidity is plentiful?
But hold on. We are also living in an era where aggregated data no longer tells the full story. US consumption looks resilient, but this headline number is disproportionally driven by the highest earners who benefitted from the stock market boom. Similarly, the
broad-based US macro resilience that we are seeing is propped up disproportionally by robust AI capex spendings, which is hardly representative of the wider economy. Diving deeper into the numbers unveils an inconvenient truth: the majority of the Americans face an affordability crisis today. The average man on the street is stuck between a rock and a hard place; job displacement as result of AI on one hand, and rising prices from tariffs on the other. Zohran Mamdani’s momentous victory in the New York mayoral election is no coincidence; he made lowering living costs one of his key campaign promises – a message that resonated deeply with New Yorkers. Sure, the Fed can step in with more rate cuts if the jobs situation deteriorates further. But its hands are tied; strong inflationary impulse remains, essentially limiting the scope for monetary easing. Against this backdrop, we caution against complacency in 2026 and advocate focusing on quality plays.
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